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Monday, August 15, 2011

More evidence that the good ol' days were not so great. The earninig power of the minimum wage in 1952 and Today...When would YOU have preferred to live?

With much hostility lately towards Capitalism and Free Markets in general (with justification) it is sometimes difficult to see the forest for the trees. It has been the greatest force in history towards advancing the standards of living for a vast majority of the worlds people. The good ol' days were not so great...I know this because I was there...

This is also a good lessson in purchasing power. Money has value because of what it can purchase. It is not how much you have, but what you can get in exchange for it. The choices today are amazing.

""To demonstrate how free market capitalism generates increased prosperity over time for average (or even low-income) Americans, economist W. Michael Cox of the Dallas Federal Reserve has compared the purchases at different points in time from the income earned by high school graduates or entering college freshmen working at a full-time, minimum-wage summer job (ignoring taxes). Here's a summary of his article "Capitalism's Many Benefits Create 'Luckiest Generation,'" which appeared in Investor's Business Daily in October 2000. Several years ago, I presented an updated comparison of the purchases from summers jobs in 1949 and 2009 in this CD post. Here's another update:

In 1952, the minimum wage was $0.75 per hour (equivalent to $6.39 in today's dollars), and a full-time summer job at 40 hours per week for 12 weeks would have generated $360 in total summer earnings (ignoring taxes). Using retail prices from a 1952 Sears Christmas Catalog, I found that a teenager then would have only been able to purchase the following 3 items with his or her entire pre-tax summer earnings of $360 working at the minimum wage (with $15 borrowed from the parents to cover the full $375 cost):

Now compare that that to the items in the table below that could be purchased by a teenager or college student this year with his or her summer earnings of $3,480 (ignoring taxes) at the current minimum wage of $7.25 per hour:

According to Cox: "Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers."

MP: Teenagers today can afford products today like laptop or notebook computers, Kindles, digital cameras, GPS systems, iPads, iPhones, and iPods that even a billionaire couldn't have purchased 20 years ago. The comparison above illustrates that we've made a lot economic progress over the last 60 years since 1952 that has increased our national prosperity - and that's happened in spite of ten recessions, the stagflation of the 1970s with 18.5% mortgage rates and a 20% prime rate, the S&L crisis with almost 3,000 bank failures, several major stock market corrections, the Great Recession, etc.

Even though the economy is still struggling to recover from the 2008-2009 recession, and we've had sub-par economic growth and sluggish job creation this year, economic progress and a rising standard of living will continue to move forward. The economic challenges of the past haven't stopped innovation and prosperity in the long run, and the current challenges might slow progress in the short run, but won't in the long run. Just like today's teenagers are infinitely more abundant than their counterparts in 1952 and can afford items not available to billionaires of past eras, the teenagers in 2070 will be infinitely more abundant than today's teens and will be able to afford products that today's billionaires can't even imagine, much less afford. ""